Topical Trends: Sourcing as a Catalyst for Growth?

There’s a saying used in the outsourcing industry that outsourcing is popular in down economies and even more popular in improving economies. While economists are better positioned to opine on the world’s current economic markets, we offer a view from the vantage of strategic sourcing design.

It is an obvious truth that outsourcing is a tool for reducing operating costs for an enterprise. What may not be as apparent is the frequency with which other motives contribute to the design of an enterprise strategy for evaluating service delivery alternatives. Through our 16 year history of advising large organizations on their sourcing agendas, it has become clear that reductions in operating costs are necessary, but hardly a sufficient impetus for introducing organizational and operating model changes.

Recently, we are seeing greater emphasis on one particular factor in the spectrum of criteria that inform a sourcing strategy: “Growth Agenda.”  Companies across industries and geographies are citing their Growth Agenda as a significant motive for evaluating internal and external opportunities for defining service delivery models, which includes information technology and “horizontal” business processes such as human resources, finance and accounting, and procurement, as well as industry-specific processes.

There appears to have been a great global awakening of opportunity and threat presented by the shifting demographics and emerging economies — all fueled by advances in connectivity. It’s a self-fulfilling prophecy, a snowball effect. As more and more of the commercial food chain enriches those in the less-developed destinations of our world, the more those destinations become attractive as consumers of the world’s goods and services. Questions are being posed along the lines of “What’s our India strategy?”

This is not to imply that outsourcing is necessarily the preferred pathway to the emerging consumer base in India, China, and Eastern Europe . . . but rather that global delivery of services through new and innovative relationships — often blending internal and external participants — is front-and-center as a topic for considering enterprise growth agendas.

Many companies are looking ahead towards future sources of revenue and are concluding that the characteristics of population shifts, healthcare costs, and available talent demand that there be a definitive strategy (which may include captive operations, joint ventures, acquisitions, outsourcing, and other consideration) for participating in these developing economies,

In a similar fashion, sources of scarce investment capital are being sought from increases in productivity in non-core support services. By continuing to apply practices related to standardization and leverage of shared resources, corporations are extracting costs that are reapplied as the investment resources for development of new products and services aimed at the market ahead.

As you can see, these factors make it difficult to chart a course entirely on the basis of a cost comparison. Lower labor rates do not guarantee lower operating costs — especially if productivity is not continually improved.

Economic recession or expansion? It almost doesn’t matter. The survival equation is demanding that variables related to sourcing strategies are evaluated with an eye towards the markets of tomorrow.